1. The Nature and Method of Economics Ch. 1  A. Economics—deals with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants. –1.We have unlimited wants/needs but only have limited resources.  Productive resources(Factors of Production) like:  Labor and managerial talent (Human Resources)  Tools and machinery (Capital Resources)  Land and natural resources (Natural Resources)  Entrepreneurial resources

2. Nature of Economics 1.1  So, the overriding economics challenge is: How do we satisfy our unlimited needs and wants with out limited resources? –Human and property resources scarce –We can’t “have it all” !  Must decide what we can have and what we must delay or forgo.  Opportunity cost: The cost of that which you get is the value of that which is sacrificed to obtain it.

3. Rational Behavior 1.1  Rational Self Interest: Individuals pursue actions that will enable them to achieve their greatest satisfaction. –College, get a job, join the Navy: choice –Coke/Pepsi example –Contrast selfishness and self interest  Behavior that enables a person to achieve personal satisfaction, however it may be derived.

4. Is this person’s decision rational? http://www.humoroftheday.com/gallery/images/Pierced1.jpg

5. Marginal costs/benefits 1.1  Marginal: “extra, additional, or change in.” –Choices involve changes in the status quo  Another year of school?  Study and extra hour for a test?  Add fries to your order?  Business: Expand or reduce output?  Government: Increase/decrease $ for the missile defense system? –Each option involves: marginal benefits/costs –Marginal benefit always includes the marginal cost of forgoing something else!

6. 1. All Decisions are Made at the Margin.  Margin: the weighing of additional costs and additional benefits of a specific change in the current situation.

7. Who in here would not stop and pick this up? Why? MB must be at least greater than the MC !

8. Why Study Economics? 1.1  World leaders routinely seek advice and council before making decisions.  President of U.S. has his Council of Economic Advisors. –Unemployment –Growth –Taxation –Poverty concerns –International trade –Health care

9. Citizenship of Economics 1.1  We need to be well informed citizens  Today's political problems have economics concerns: –Budget deficits –Inflation –Poverty index –Social security –Income taxes –International trade deficits

10. Personal Applications 1.1  Economics involves precise, detailed, systematic analysis. –Businesses like people who can do this –It helps us “make sense” of things going on around us each day; news, etc.  Economics is important for business: –> Profits; when to hire more people? –When to invest in new equipment? –Understand causes of inflation, recession, etc

11. Economics Applications 1.1  Helps workers and consumers: –How do you spend your money to maximize your personal satisfaction? –More economical to lease or buy a car? –Use credit card or pay cash? –What occupations pay well?